Social Media

Zynganomics: 4 Secrets of the Social Gaming Business Model

Gabe Zichermann is the chair of the upcoming Gamification Summit (March 19-21, San Francisco), where engagement industry leaders will gather to share knowledge and insight. Zichermann is also a public speaker, designer and author of the books Game-Based Marketing and Gamification by Design.

Zynga’s Farmville, CityVille and Mafia Wars aren’t just the most successful digital games of all time; they also present an amazing economics lesson that everyone can learn from.

When we observe Zynga's story, we can learn from its user behavior, discover new patterns, and apply these lessons to any website, app or experience – including our national governments. We can take the best lessons from games (like loyalty and behavioral economics) and apply them to other areas.

The practice is called gamification, and Zynga sets the gold standard.

Let's take he top economic lessons from FarmVille and apply them to business.

1. The Illusion of "Free"

Social games like FarmVille generate a lot of money from user payments, but their consumer strategies are radically different from other kinds of online content.

Instead of a fixed paywall (e.g. pay $4 per week or get nothing), social games offer the illusion of free entertainment. The method looks something like this.

Congratulations! You’re so awesome that you've achieved the next level.

Now you need a new object to keep moving forward. Check out this tractor!

To buy this item, you’ll need 10,000 in virtual cash.

You can earn this money by grinding away at your “job” until you earn enough currency (while promoting our product through social media), or

You can simply pay money to skip the line and get what you need now.

This design is brilliant. By presenting the purchase option as “your time vs. your money,” social game designers tap into both our desire for choice and our sense of self-importance. When you choose to skip the line, you’re making a decision in favor of your ego. The decision feels less about the price-value continuum, and more about time-value. Meanwhile, those who choose not to pay are promoting the game on social media.

The lesson: Where possible, give people the option of paying with time (and social promotion) or money. They’ll be happier, and ultimately pay more.

2. Never Limit How Much Someone Will Pay

The time-money approach to conversion also allows FarmVille to offer highly discriminated pricing, which provides users with highly customized offers and triggers. Virtual currency and a flexible trigger system causes some degree of pricing confusion. At the same time, it also allows the game to extract the maximum revenue from each user by making conversion to sale incremental, personalized and micro-transaction based.

In Feb. 2012, Zynga reported a $311 million revenue on 153 million unique users, for an average revenue per user (ARPU) of right around $2. But given that only about 3% of people pay for social games on average, the paying player ARPU is probably closer to $60 per user. Once you distribute that number across a natural curve, it becomes obvious that some users are paying hundreds or thousands of dollars a month to play FarmVille.

The lesson: Break your product/service into smaller elements, sell those items privately, and use a virtual currency to overcome the price discrimination problem. The strategy will unlock your revenue upside.

3. Focus on Trigger Activities, Sweat the Details

No matter how good your experience, people will always become bored, distracted and leave for one reason or another. The single best way to combat this is to constantly innovate and add more to your users day-to-day interactions.

Equally important to generating revenue is focusing on triggers and small actions. Rather than designing your conversion system as an all-or-nothing experience and leaving the minutiae up to the user, develop a comprehensive, action-based view of your users’ behavior. In other words, monitor what is making users take action (see gamification platforms like Badgeville, Bunchball and BigDoor).

Once you understand the key behavior triggers, raise conversions by looking for small interventions that reduce churn and raise ARPU – sometimes by as little as 1-2%. For example, say that FarmVille product teams discovered that asking for more than $35 in purchases per month caused unusually high churn for some users. Zynga would change the call-to-action at $36 by asking for social activity instead of cash. This would immediately reduce churn by a couple percentage points, and ultimately generate millions in additional revenue.

The lesson: Instead of simply putting things on sale, look for the small details in the user conversion funnel that can deliver incremental revenue and reduce churn.

4. You Always Need More Players

This might seem painfully obvious, but you consistently need more players to keep an economy growing. While you're looking to raise revenue per player, incorporate more input to sustain growth.

Take the old saying: "It's cheaper to retain an existing customer than recruit a new one." While that may be true, it’s not enough to grow a business. For social games, recruitment is a core part of business — at every turn, the game makes it as easy as possible to bring new people in. We need not be as concerned with the starting level a player is on, but rather with how far they can progress.

The lesson: Customer acquisition is an essential part of any growth strategy, and should be made as easy as possible, integral to every aspect of your gamified experience.

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